Lifetime ISA

AdmanPea

I'm looking to open a lifetime ISA to access when 60. What are people's thoughts on going with Moneybox or Nottingham BS (as mentioned on site?) Literally no difference in terms of the two? I generally like my money to go somewhere with a social conscience if at all possible...

grumiofoundation

This may depend slightly on your age but it would probably be unwise to hold money in cash for an extended period of time since it will most likely lose money to inflation. 

If savings for retirement a stocks and shares lifetime ISA is probably more suitable than cash LISA.

I have had moneybox cash LISA for a year or so and had no problems so far (although only 2 transactions thus far 1 transfer and one lump sum payment). A friend at work opened nottingham LISA and the application seemed painless for her.  

eskbanker

If you're eligible to open a LISA then you must be under 40, and therefore if anticipating use for retirement (rather than first property purchase) you'd be looking at the money being tied up for at least twenty years.  It would be rash to use cash-based deposit accounts for this, as they'll typically underperform inflation and your money would lose real-terms value, so look instead at S&S LISA providers: https://www.moneysavingexpert.com/savings/lifetime-isas/#bestbuysstocks

bowlhead99

If you are looking to open a lifetime ISA to access when you are 60, you must be less than 40 now, so the money will be in there for more than two decades. It would be bonkers to use a 'cash deposit' based account such as Nottingham BS for such a timescale, because you would lose to inflation and may end up with less than what went into it, in real terms (spending power)

By contrast, Moneybox offers a S&S (investment) lifetime ISA in addition to their cash one, which could be suitable. An S&S LISA invested in investment funds is sensible for a 20+ year term. A Cash LISA is not suitable for a 20+ year term, they are used by people who are saving towards a deposit for a first property, generally with a <10 year timeframe.

So, use a S&S LISA not a Cash LISA. And if you are looking at S&S products I would prefer someone like AJ Bell Youinvest or Hargreaves Lansdown or others who have been in existence longer than Moneybox and are profitable and likely to still be around in a few years time - rather than being closed down or bought out, causing you to transfer your account elsewhere.

AdmanPea

Vanguard Life Strategy maybe?

Dh6

At the current Moneybox rate of 1.25% if I put the the maximum in each year, which I plan to, my LISA will be worth 115k.

 My total investment would be 72k with 18k government bonus and the rest interest. 

I work out thats a 45% increase on the money I’ve put in, granted it’ll be in there for 28 years.
 My idea was to keep this part of my retirement pot risk free rather than invest it in the stock market as my SIPP is currently 100% equities. 
Is my approach logical or
am I being foolish? 

bowlhead99

It is being foolish because the rate of interest will probably be lower than (or at least, won't be any better than) the rate of price inflation - so the money plus government bonus won't grow at all in real terms over the next three decades, which is a huge missed opportunity compared to using 'investments' rather than 'cash savings'.

If prices go up 3% a year for the next 28 years, goods and services which cost £1 now will cost £2.28 later. So £115k in 28 years has the spending power of £50k today.  Of course, the contributions don't cost you as much as £72k in today's money either, if some of them are not being put in until 18 years from now, but overall it will not be nearly as lucrative as you are hoping for.

If interest rate on the deposit account is not any better than inflation the money will not grow in real terms and if it is worse than inflation the money will shrink in real terms for every year it is in there.

That is why people say to use investment funds rather than cash deposits for long time periods, because they would be expected to return more than inflation, rather than the same or less than inflation. 

Presumably you have a workplace pension and are benefiting there from the 'free money' of employer contributions and tax relief. Just because there is free money, does not mean it should be kept in a cash deposit account. Instead, the pension money will be invested in investment funds to benefit from stock market growth over the longer term, otherwise you will have a miserable retirement compared to your friends and neighbours who use investments over the next two or three decades.  So, take the same attitude with the money in your LISA, and put it in an 'investment' S&S LISA, rather than a 'rainy day savings / house deposit' cash product.

When you say 'risk free' in relation to a cash deposit, you only mean it is free of investment risk because the amount of pounds will not swing up and down from one day to the next.

But it is subject to inflation risk (the fact that the number of pounds will not buy nearly as much stuff as the same number of pounds would buy today) and it is subject to 'shortfall risk' (the fact that you didn't get any growth in real terms, and so haven't made enough progress towards reaching your objective of having a comfortable old age - you are just getting your own money back with a bit of government bonus, but no real growth).

Mr.Saver

Dh6 said:

At the current Moneybox rate of 1.25% if I put the the maximum in each year, which I plan to, my LISA will be worth 115k.

 My total investment would be 72k with 18k government bonus and the rest interest. 

I work out thats a 45% increase on the money I’ve put in, granted it’ll be in there for 28 years.
 My idea was to keep this part of my retirement pot risk free rather than invest it in the stock market as my SIPP is currently 100% equities. 
Is my approach logical or
am I being foolish? 

Try https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator and you will find out that something costs £10 in 1991 would cost £21.63 in 2019, 28 years later. Which means if the inflation is the same in the next 28 years, your £115k in 2048 would only have a bit over £53k buying power in today's pounds. It's not a 45% increase, but a 26% decrease on your £72k in today's pounds.

steampowered

Dh6 said:

At the current Moneybox rate of 1.25% if I put the the maximum in each year, which I plan to, my LISA will be worth 115k.

 My total investment would be 72k with 18k government bonus and the rest interest. 

I work out thats a 45% increase on the money I’ve put in, granted it’ll be in there for 28 years.
 My idea was to keep this part of my retirement pot risk free rather than invest it in the stock market as my SIPP is currently 100% equities. 
Is my approach logical or
am I being foolish? 

I think your approach is pretty foolish. Over a 28 year investment period, the chance of making a loss on the stock markets is nil. As you will see from this, the risk drops to nil at an investment horizon of 11 years. https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/. Especially if you are investing over time.

It's not a 45% increase on your money because you are ignoring inflation - inflation will probably be more than 45% over that period.

al61williams

Can someone confirm why our son is being advised that he cannot transfer 4 years worth of HTB ISA directly into a LISA.  If i wanted to transfer monies from one to ISA into another, my understanding is that i am allowed to do so up to £20K, so what's the difference?  He's already qualified for the Bonus via the HTB and is only moving platform.  I believe that he can move it yearly at the rate of £4k but then that precludes him paying in anymore in that year.  Seems to be penalising the savings process. 

Alexland

Yes he can only move up to £4k each tax year between a HTB ISA and a LISA which uses up his LISA contribution allowance.
Why? Government policy.